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The Bank of England (BoE) has announced that interest rates will be raised by 0.5%, bringing the base rate of interest to 4%, the highest level in 14 years.
The increase, which is the tenth consecutive increase, was decided after the bank’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to increase the rates, as part of efforts to meet the 2% inflation target.
As part of its summary, the MPC said the decision comes as global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the UK.
On the outlook, the MPC has said there are still “considerable uncertainties”, and that it will “continue to monitor closely indications of persistent inflationary pressures”, including the tightness of labour market conditions and the behaviour of wage growth and services inflation.
However, the BoE improved its forecast for the economy, and while still anticipating that the UK economy will enter into a recession in 2023, it now predicts a “much shallower decline” than previously predicted in November – down from 1.5% to 0.5%.
Looking further ahead, the MPC said it will adjust the bank rate “as necessary” in order to return inflation to the target 2% sustainably in the medium term, in line with its remit.
According to the BoE, the extent to which domestic inflationary pressures ease will depend on “the evolution of the economy”, including the impact of the significant increases in the bank rate so far.
